In a business venture, loan has a very important role to play. Being ambiguous in nature, it has both functions of acting as borrowed money or a lent sum. So, if a loan appears on debit side of Trial Balance, it is taken as funds that have been given to outsiders.
In such a scenario, it is called as an asset, since there is a certain amount of interest that is associated with it and it is credited to profit and loss account of the Balance Sheet.
- In case of trial balance, it is specifically associated with credit side of the profit and loss account.
- If adjustments are to be considered, there are 2 places that it can put it as per the rules stated. It can be added to credit side of profit and loss account, while at the same time it will be shown on the assets side of Balance Sheet.
- Being an item of Trial Balance, interests on loans are specifically placed on debit side of profit and loss account.
- Interest on loan will be specifically shown on credit side of profit and loss account. It will also be added on assets side of the Balance Sheet.
A detailed study can help a student garner better knowledge of the topic.
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